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GM Stock Is A Safe Bet In A Weak Auto Industry

The U.S. auto industry got off to a bumpy start to 2018 when light vehicle sales declined by 3 percent in the January. Bank of America analyst John Murphy is expecting more lackluster numbers in February, but General Motors Company (NYSE: GM) investors shouldn’t be discouraged by the difficult environment.

Bank of America is forecasting another 2 percent decline in U.S. light vehicle sales in February, dropping the seasonal adjusted annual sales rate below 17 million units. Murphy says the auto industry is in the early stages of its long-anticipated cyclical downturn following record annual sales in 2015 and 2016. General Motors sales were down 2 percent overall in 2017, even after roughly 300,000 hurricane-related sales.

Unfortunately, Murphy says there are several troubling signs in the auto industry at the moment. First, the industry’s push toward leasing is showing no signs of slowing down, a trend that Murphy says will eventually lead to a “tsunami” of off-lease vehicles that could place tremendous pressure on used vehicle prices.

Second, the pricing environment is getting even more aggressive, with average sales incentives rising 10.5 percent in 2017 to $347 per vehicle. Finally, fleet sales were relatively weak in 2017, a potential leading indicator of where the overall market is headed.

General Motors has held up relatively well in recent months, outperforming the overall industry. However, Murphy says GM was unable to maintain that momentum in February. Bank of America estimates GM’s February sales declined 5 percent compared to only a 2.5 percent decline for rival Ford Motor Co. (F). Murphy estimates GM secured a 17.3 percent market share on the month, outpacing U.S. competitors Ford (15.2 percent) and Fiat Chrysler Automobiles (FCAU, 11.2 percent).

Murphy says GM investors should be aware of the overall trends in the industry, but they should be careful not to read too much into January and February numbers.

“It should be noted that January and February are the lowest sales volume months of the year, and therefore, we are hesitant to draw any conclusions about the [year-to-date] sales pace just yet,” Murphy says. “We believe…

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